The $ thing

[Greg Nowell <GN842@xxxxxxxxxxxxxxxxx>]

Dennis Redmond:

According to the Federal Reserve's flow-of-funds data,
we're
talking inflows of $200 billion a year. Who knows if
this is accurate, but
considering the US trade and capital account deficits,
it's hard to argue
that the US bubble is based on positive fundamentals.

GN:

I won't deny it's a bubble but I note that to the
extent that the US $ is a prized asset in and of itself
in many countries (and an investable one, in off-shore
banking arrangements that avoid US taxation and
regulation) that to some extent we are doomed to have a
trade deficit because when people have our $ they have
the "thing" that they want from us.  This is the demand
for money as such, rather than as a means to purchase a
US made good.

Moreover, I note that if the $ were not flowing back in
that could be perceived as a crisis, too.  So if it is
flowing in it is a crisis and if it is not flowing in
it is a crisis: perhaps an even worse crisis, because
now we would be talking about an unsatisfied demand for
funds.  Are we to conclude that the only way to avoid
crisis is to run a permanent trade surplus?  Then how
do we account for the fact that Japan is so screwed up?

--
Gregory P. Nowell
Associate Professor
Department of Political Science, Milne 100
State University of New York
135 Western Ave.
Albany, New York 12222

Fax 518-442-5298